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Tag: chris dodd

Obama’s recent nomination of Jeremy Stein and Jerome Powell to the Board of Governors of the Federal Reserve System raises an important question: How should the Senate treat nominations whose terms are likely to run beyond the term of the current president? If confirmed, Stein could serve until 2018 and Powell until 2014. Of course this pales in comparison to current governor Janet Yellen, whose term runs until 2024. With or without Stein and Powell, Obama nominations will have control of the Federal Reserve for years to come.

The long terms of Federal Reserve governors are meant to insulate them from political pressure. But that’s after they’ve been confirmed. This structure tells us little about how to handle such appointments during their nomination phase.

In the absence of strong policy or theoretical rationales, we often look to precedent. In this case we have at least one. In December of 2007, almost a year before the November 2008 election, then Senate Banking Committee chair Chris Dodd (D-CT) said, in relation to the nomination of Randall Kroszner to the Federal Reserve, “We’re frankly getting down to less than a year away from the election. On nominations of that length, I’m fairly reluctant.” Senator Dodd acted (or rather failed to act) on that reluctance, and blocked the nomination of Professor Kroszner. His nomination was not an exception, as the nominations of Larry Klane to the Federal Reserve and a couple of nominations to the Securities Investor Protection Corporation were also blocked, for apparently this same reason. Dodd also delayed nominations to the President’s Council of Economic Advisers, although those positions would have ended with the term of President Bush. Also worth noting is that these important economic policy positions were being blocked in the middle of a recession and financial crisis, when one would think you need “all hands on deck.”

Is this “Dodd rule” the correct position? It’s hard to know. I can say I didn’t think it was appropriate at the time. And I am usually not one to believe that “two wrongs make a right.” The correct solution, in my view, would be to have the Senate decide upon the appropriate length of time before a presidential election that it will no longer consider nominations that run beyond the president’s term and incorporate that decision into the Senate rules. Until then operating under the “Dodd Rule” strikes me as fair enough.

Remember that “tough study” promised by Senator Chris Dodd to deal with Fannie Mae and Freddie Mac? Well it is finally out. All 22 pages (of doubled-spaced large font). And less than half those pages actually discuss Fannie and Freddie.

While the report does say a lot of the right things — such as protecting the taxpayer — it is awfully short on any real details. And in many areas, the report makes clear that the Obama administration intends to keep the taxpayer on the hook for future losses arising from Fannie and Freddie. For instance, after assuring us that the GSEs will have sufficient capital to meet their obligations, including debt, the report tells us that such capital will not come from investors, but from the taxpayer. One has to wonder whether this report was written for the benefit of the Chinese Central Bank (one of the largest GSE debtholders) or for the benefit of the U.S. taxpayer.

Equally vague is the discussion of “winding down” Fannie and Freddie. While that sounds great, how is this to be accomplished? And how long will it take? Again it seems that this “wind-down” will be financed by the taxpayer. It is suggested that the GSE guarantee fees will increase. Again, by how much and when?

Paragraph 2 of Section 1074 of the Dodd-Frank act, which required this study, also requires an “analysis” of various options and impacts. In all due respect to HUD and Treasury and their efforts, there is nothing in this report that remotely resembles an “analysis” — just vague generalities.

I appreciate the administration’s stated desire to move us closer to a private market solution, but we’ve heard these empty promises before. Remember that financial reform was going to end “too big to fail” and bailouts? Health care reform was going to “bend the cost curve”? It is past the time of fluff. We need actual details and an actual plan.

For details of immediate action that can be taken, see my testimony from earlier this week.